What are the different ways to crowdfund?In June 2012 Escape the City (Esc) raised £600k on the crowdfunding platform www.crowdcube.com. If that was not enough they broke a new crowdfunding record by raising it in just eight days - 394 investors putting in an average of £1,522. They made it look easy and have encouraged many more early stage businesses to give crowd funding a closer look.

Crowdfunding is on the rise and will continue to be so for at least the next few years.Excluding debt funding there are two main types of crowdfunding platforms:

1. Gifting crowdfunding sites such as www.kickstarter.com or www.indiegogo.com where no equity is involved. The “donations” can be as small as £10 and can involve rewards such as tee-shirts, invites to launch parties and products that have been produced post-funding. Often this type of platform suits creative industries and social enterprise.

2. Equity crowd funding, such as www.crowdcube.com and www.seedrs.com where, in return for cash, a person can play Dragons Den and take a tiny stake in a company that potentially could produce a healthy return on investment. The individual investor or crowd will have no say in the company but often there can be several other fringe benefits to being an investor, similar to the gifting sites above.

With both types of crowdfunding you upload your pitch and then have typically 60 days to secure the full amount of capital you require. If you fall short of the target funding, all the capital raised gets returned. The costs are usually 5-7% of capital raised. For the benefit of this blog post I will focus on equity crowdfunding.

So why were Esc so successful?The short answer is that their business was simply a good match for equity crowdfunding. Can you say that about your business? Let's take a look at five critical factors for Esc's success when raising equity crowd funding:

Esc already had an active and responsive database of 70,000+ registered users, built up over three years, that had already bought into their concept, ethos and mission. Although many crowdfunding sites have over ten thousand registered investors, if they do not know you it will take a lot of convincing to get them to buy into what you are doing. The Start-ups that secure crowdfunding usually already have a good following before they even ask for the money.

Esc primed this base of supporters before releasing the deal onto Crowd Cube to make sure they got off to a quick start and could build an unstoppable momentum. Not only is it important to have your own database, but you need a strong pre-launch campaign delivered through email, face-to-face and social media for at least two weeks before you release the deal on a crowdfunding site.

Their pitch was outstanding in its clarity of vision and its description of the past, present and future. People could buy into the compelling narrative emotionally and wanted to be a part of it. Also important was the fact that they sold as a team, not just a corporate entity. The business plan is less important than the emotional impact you can make through video, images and graphics. Invest most of your preparation time on your one-two minute elevator pitch; without an excellent pitch you will never gain enough interest to get your deal funded.

They demonstrated a clear business opportunity through credible visuals and financials that showed how investors could make a healthy return. The team made no promises of huge pay-outs, although there was a strong indication of a scalable business that would be able to find a buyer in 3-5 years’ time. There's really no need for a 100-page business plan – investors will not read it. Instead offer a clear business case on no more than six pages.

Esc's concept is clear and easy for a large crowd to 'get'. It's easy to understand that "Escape the City" is an online platform offering jobs, adventures and other opportunities for people keen to leave their city cubicles to try something new. People need to be able to understand your big idea within 10 seconds, and then be able to tell other people about your business with ease. If your venture has a high degree of complexity it may not be for the crowd but for more specialist investors.

Is it right for your business?

Crowdfunding will continue to gather hype in the months ahead. This is good news for entrepreneurs, as it means high valuations, a much quicker route to capital, and access to a large base of enthusiastic investors spreading the word about your business. Should this option not suit your business however, it's important to remember that crowdfunding is just one of many alternative routes to funding. But how do you know whether equity crowdfunding is right for you? If you can tick off all the five points above for your business – then go for it!This article first appeared at Knowledge Peers 2012

This is a blog post on crowdfunding I wrote for Knowledge Peers in 2012 and reposted here ahead of their Exchange 2013 which included a spotlight on alternative funding. You can read my original post hereand find out more Knowledge Peers' Alternative Funding Network on their website.

Great authentic topic and a knowledgeable post you shared here.It is true that Crowd funding is on the rise and will continue to be so for at least the next few years.After a long time I got something fresh and quality content on related topic.I appreciate it and thanks for sharing such nice post.

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